Current Xbox model not profitable

[Ooh-videogames]

Microsoft's Connors Says Current Xbox Model Won't Be Profitable


Jan. 27 (Bloomberg) -- Microsoft Corp., which is trying to
compete with Sony Corp. in video-game consoles, will try to
design the next version of its Xbox machine with cheaper parts
because the current model won't ever be profitable.

``With the current cost of goods, there's no way to make
money with this generation of the console,'' Chief Financial
Officer John Connors said at an investor presentation in Boston.


He didn't say when Microsoft would introduce a new Xbox.
Analysts expect the next one in 2005 or 2006.

--Dina Bass in Seattle dbass2@bloomberg.net

I guess the model will only have a slight change, I don't think their going to sacrifice performance. The harddrive is the only thing that comes to mind that may be sacrificed, but thats going to have an affect on Live.

 

[cybamerc]

I've been saying this for quite some time so it shouldn't come as a surprise to the users of this board.

 

[Lazy8s]

So they don't expect to reach the critical mass in sales that it would take to start seeing the return on their investment this cycle. No big deal for them; companies don't pull punches in this industry - they can afford larger initial losses and to wait it out longer.

The first Xbox was uneconomical because of how little time they had to R&D it - it had to be designed and launched on an admirably fast schedule. The most significant factor in keeping costs down next time will be the better (longer) planning and design of parts and the cost reduction of those parts over their lifecycle.

 

[cthellis42]

One wonders if they indeed WILL be excluding a hard drive at launch. Helluva thing to pull from one generation to another, but it's also a big enough burden. (And not something they can really cost-control.) Having it as a from-launch optional accessory is at least more cost-sustainable. They take a marketing hit, but if they're really trying to watch their cost with Xbox 2, it's more important to focus on the CPU/GPU. They can offer a HD package (heck, if it's separate they can offer multiple sizes and update them over the lifespan, at least) separately that they don't really need to profit on, and at least it will keep the console price down.

 

[Devourer]

To tell the truth, I really cannot see anything admirable in rushing an hardware out just to compete in the market. Buying hardware from others and pulling pieces together a la Frankenstein is hardly my idea of hardware to admire. Imo of course.

 

[Qroach]

There's still going to be a hardrive in the next xbox, there's no way around that really. They need to be able to download and save things to a platform that has the same performance level. You can't do video on demand without a harddrive. I'm thinking they will switch to notebook hardrives as those are becomig incresingly cheaper. I just bought a notebook harddrive for 120 bucks (retail not wholesale) canadian, and turned it into a portable USB drive to carry around files. 2 years from now those drives will be even cheaper as they are moving into other portable devices outside of notebooks.

Also, the next gen consoles from sony and MS will come with some form of PRV functionality. THe stuff MS is doing with the media centre add ons and Sony with the PSX shoudl show you signs of the future.


Anyway regarding not making profit on the hardware, if anyone is incredibly suprised then I'm baffled. They had the advantage of not using custom parts to get it out the door in a quick manner, but when you deal with intel and nvidia for all of the important chips and they don't have any reason to pass savings onto MS, then they just can't shrink it down and make money. Also it didn't help when they had to drop prices to stay inline with a sony console already engineerd for cost savings. Not only that, but instead of shrinking it down and using different less costly parts, MS chose to spend the time/money on R&D for the next console instead. Which imo is a better idea and it could allow them to control the fabbing and chip development in a more costly manner.

 

[Guden Oden]

I couldn't actually give a rat's arse wether hardware X generates profit or not, all I want are good games...

Give me that, and I'm a happy camper, even if it means the company's bleeding money in order to satisfy me.

I mean, why should I care? If I were the boss of any of these companies, it'd be a different story, but now it's just BORING stuff to listen to. Let's talk games instead, hehe!

 

[PARANOiA]

I couldn't actually give a rat's arse wether hardware X generates profit or not, all I want are good games...

Give me that, and I'm a happy camper, even if it means the company's bleeding money in order to satisfy me.

I mean, why should I care? If I were the boss of any of these companies, it'd be a different story, but now it's just BORING stuff to listen to. Let's talk games instead, hehe!

And we have a winner More games, less corporate loyalty

 

[cthellis42]

Also, the next gen consoles from sony and MS will come with some form of PRV functionality. THe stuff MS is doing with the media centre add ons and Sony with the PSX shoudl show you signs of the future.

Granted they both want that, but they also know they can't get that meaningfully in a sub-$300 system while they're both competing first and foremost on graphical/game-playing capabilities. They're either going to have to start kicking out the top end, or accept bigger losses, or know that they're mainly going to bring that about in other devices, or optional expansions. Overloading the base console that you want to sell tens of millions of will be throwing capital out the door, and the thing they WON'T sacrifice is game-playing power.

Offhand, I still think the hard drive could take a hit. I don't see it as too likely, if only because they don't want to backslide on any of the features they were heavily promoting from the Xbox, but it's definitely a sore spot for a machine wanting to stay low-priced and chase the competition downwards.

 

[Lazy8s]

Devourer:

To tell the truth, I really cannot see anything admirable in rushing an hardware out just to compete in the market.

It was impressive just how fast they managed to bring the Xbox platform into the gaming world... design, development of tools/games, the building of operational infrastructures for a new corporate division, establishment of a business model for themselves and third parties, the gathering of worldwide industry-wide support, establishment of sales/marketing/distribution channels for publishing, manufacturing and launch.

Buying hardware from others and pulling pieces together a la Frankenstein is hardly my idea of hardware to admire.

Hardware should be judged on how well it performs, not whether the manufacturer searched the world for the best technology or instead took a chance growing some at home.

 

[jvd]

Buying hardware from others and pulling pieces together a la Frankenstein is hardly my idea of hardware to admire.

Sony has bought cell and have modified it into something that they want .


Whats the diffrence .

 

[cthellis42]

So your definition of "bought" is "has been co-developing with two other companies since 2001"? Honestly, jvd, while there was plenty to pick apart from Devourer's comment, could you at least take the route Lazy8s chooses to, as opposed to the "hey, I'll be an ass now" approach?

 

[Paul]

So your definition of "bought" is "has been co-developing with two other companies since 2001"?

More like created from almost scratch with Toshiba and IBM usingsome of their own Engineers for 5 years(Work was underway before 2001)

 

[cybamerc]

Guden Oden:

> I mean, why should I care?

Certainly you should care that a company is leveraging its monopoly in different markets to put the squeeze on viable, healthy businesses.

 

[chapban.]

Isnt Cell a PPC4/Blue-Gene derived. "Bought" or "From scratch" doenst sound right both, i use my term, "highly customized" .

 

[V3]

It was impressive just how fast they managed to bring the Xbox platform into the gaming world... design, development of tools/games, the building of operational infrastructures for a new corporate division, establishment of a business model for themselves and third parties, the gathering of worldwide industry-wide support, establishment of sales/marketing/distribution channels for publishing, manufacturing and launch.

Yes its impressive on how willing MS to lose money. If I heard right that was their plan from the beginning.

Sony has bought cell and have modified it into something that they want .

Whats the diffrence.

I am pretty sure the contract is different for Xbox2. Where Xbox MS just purchase chips from Intel and NV, this time around they go Sony route and just do IP.

So I don't think ATI or IBM gained as much as NV or Intel for Xbox2.

 

[chapban.]

For all their losses, we gotta admit, Xbox is impressive hardware. It is their losses not ours. I hope they "lose more" for Xbox2 and give us another full range system. MayB with customized IP parts, they can get cheaper over the long run, but still maintain that kick-for-ass price over performance. One can hope...

 

[London Geezer]

Sony has bought cell and have modified it into something that they want .


Whats the diffrence .

Another one of jvd's gems....

 

[Saem]

As per all things technology, the cost for harddrives is very low these days, they're far more pervasive then they were during the XBox era and they're in harder to engineer for form factors. Thanks to the every increasing popularity of smaller and smaller portables and things like MP3 Jukeboxes and other popular consumer electronics such as PVRs, HDDs will be very cheap, in a small form factor and a lot of storage so it likely won't save them that much. Their real cost savings will come from lithography and overall form factor.

 

[rabidrabbit]

Why don't MS (and other next gen consoles) just go with some format of recordable HD-DVD?

Sure, a 260GB HD would be more convenient, with everything on one place. But replacing some 20+ gig DVD's (you could own one including music, one including movies, one including game demos etc...) would not be that bad. It would even have many advantages compared to fixed HDD, like transferability and data backup.

Even game saves and patches/updates would be possible to be burned onto the game disc itself.

At least I'd rather take a console with this option, instead of a one with fixed hard disc drive and current standard DVD RW.
A HD DVD RW + HDD is unrealistic to expect from next gen affordable console.